Update (5 March, 2019 18:00 UTC): 1Broker said it settled charges with the SEC and CFTC, and would allow customers to continue withdrawing funds through the end of 2019. Court documents indicated that 1Broker and founder Patrick Brunner would also be required to pay $26,000 in disgorgement fees. The CFTC did not immediately confirm the settlement.
The U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are suing a Marshall Islands-based securities dealer for allegedly violating federal law through a bitcoin-based security swap scheme.
The SEC announced in a press release that it filed charges against 1pool Ltd., also known as 1Broker, as well as its CEO Patrick Brunner for selling security-based swaps to U.S. and international investors without following proper "discretionary investment thresholds." Notably, investors could only purchase these swaps with bitcoin, according to the claims.
The SEC is further claiming that 1Broker was not registered a "security-based swaps dealer" and "failed to transact its security-based swaps on a registered national exchange."
Shamoil Shipchandler, director of the SEC's Fort Worth regional office, said in a statement that "the SEC protects U.S. investors across a variety of platforms, regardless of the type of currency used in their transactions ... International companies that transact with U.S. investors cannot circumvent compliance with the federal securities laws by using cryptocurrency."
The regulator is looking for a permanent injunction against Brunner and 1pool, along with penalties and "disgorgement plus interest."
In addition, the CFTC filed charges against 1Broker for similarly violating federal laws by failing to implement anti-money laundering and supervisory features.
The FBI later reported it had seized the 1broker.com domain, claiming the company has violated money laundering and wire fraud laws, in addition to "operating as an unregistered broker/dealer of securities" and "operating as an unregistered futures commission merchant."
1Broker did not immediately respond to a request for comment.
Editor's note: This article has been updated.
SEC image via Shutterstock
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.